The penalty and the ordinary taxes comes when the money is removed from the plan. What is your response to my main point ? What plan are you referring to ? Who is your employer ?
I *am* including the income tax (to emphasize, I put caps lock extra words in to show that the income tax is paid): Start: 1200 End: 1881 capital gain = 1881 - 1200 = 681 capital gain TAXED AT ORDINARY INCOME TAX RATE OF 25 PERCENT= .25(681) = 170.25 penalty on capital gain = .1(681) = 68.1 Gross - income tax - penalty = net 1881 - 170.25 - 68.1 = 1642.65 I am not seeing where the math is incorrect.
penalty is 10% on the total withdrawal(if earlier than 59.5), not on the capital gain. They don't care how much capital gain, the only thing that matters is how much is the distribution. Listen to Robert, he is the expert.
This be why you pay a CPA for the end-of-year returns. And if he/she is a funny, they will be pirate and yell "arrrr" a lot and speak of their peg-leg and eviscerating parrot.
I got it now... thanks! The entire input amount to the 401k has to get taxed. I was taxing only the capital gains portion.
You are stating the obvious and not getting the nuances and details that others are trying to point out. I would suggest you re read this entire thread. The IRS did not change the tax code so that a simple work around would defeat the whole purpose. One very simple point you have not acknowledged is that most EMPLOYERS ,who administer the bulk of 401k plans , do not allow Short term trading. No matter what your google search/zacks investment web site implies.